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Income Tax Appellate Tribunal, ‘’ SMC” BENCH, AHMEDABAD
Before: SHRI WASEEM AHMED
आदेश/O R D E R
PER WASEEM AHMED, ACCOUNTANT MEMBER:
The captioned two appeals have been filed at the instance of the Revenue against the separate orders of the Learned Commissioner of Income Tax (Appeals)- 5, Ahmedabad of even dated 24/09/2020 arising in the matter of assessment order passed under s. 143(3) of the Income Tax Act, 1961 (here-in-after referred to as "the Act") relevant to the Assessment Year 2015-2016.
ITA No. 01/Ahd/2021 an appeal by the Revenue for A.Y. 2015-16 in the case of Dharmendra C. Shah
The Revenue has raised following grounds of appeal 1. The Ld.CIT(A) has erred in law and on facts in allowing the claim of disallowance amounting to Rs.16,52,573/- under section 10(38) of the I.T. Act and deleting the addition made u/s.68 of the I.T. Act. 2. The Ld.CIT(A) has grossly erred in facts and in law for the reason that assessee had entered into share transaction in the script Santoshima Tradelink Ltd. which emerged with sunrise Asian Limited, a penny stock company, from whom the assessee earned bogus long term capital gain. 3. On the facts and circumstances the Ld.CIT(A) ought to have upheld the order u/s.143(3) r.w.s 147 of the I.T Act passed by the Assessing Officer. 4. It is therefore prayed that the order of the ld.CIT(A) may be set aside and that of order of the Assessing Officer be restored to the above extent. 5. It is further prayed that the present appeal comprises the issue of organized tax evasion scam involving claim of bogus long term capital gain through penny stocks for which the CBDT vide Circular No.23 of 2019 dated 06.09.2019 read with OM vide Circular No.23 of 2019 res with OM dated 16th September, 2019 exempted such cases from monetary limit for filling appeal, hence the appeal be decided on merits.
There is delay in filing the appeal by the Revenue for 31 days. However, we condone the same in pursuance to the judgment of Hon’ble Supreme Court in the
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case of Cognizance for Extension of Limitation, In re reported in 125 taxmann.com 151 and proceed to adjudicate the issue on merit.
The only interconnected issue raised by the Revenue is that the learned CIT(A) erred in allowing the claim of exempted long term capital gain of Rs. 16,52,573.00 on penny stock.
The facts in brief are that the assessee is an individual deriving income from house property and long term capital gain. The AO found that the assessee purchased 37,500 equity shares of M/s Conart Traders Ltd from Santoshima Tradelink Ltd. for Rs. 7.50 lakh. The payment was made through the demand draft dated 01-11-2011. However, the shares were transferred to the assessee dated 27- 11-2011 and same were allotted to Santoshima Tradelink Ltd as 25-11-2011. Subsequently the M/s Conart Traders Ltd got amalgamated with M/s Sunrise Asian Ltd and the assessee in turn got 37,500 share of M/s Sunrise Asian Ltd which were duly dematerialized. The assessee during the year sold 3752 share of M/s Sunrise Asian Ltd on various dates of May 2014 to December 2014 at price varying between Rs. 359.60 per share to 492.25 per share. In the result assessee earned long term capital gain of Rs. 16,52,573.00 only.
The AO further found that the scrip of M/s Sunrise Asian Ltd was found as penny stock which was utilized for providing bogus long term capital gain by the investigation wing of Income Tax Kolkata. The name of the Sunrise Asian Ltd included in the list of 84 scrip identified by the Investigation wing as penny stock which was utilized for providing bogus long term capital or loss to the beneficiaries after conducting country wide investigation on various brokers, entry provider and sub-broker. The AO also found that share price of M/s Sunrise Asian Ltd increased by more than 500% in a very short period of 14 months without having financial backup, new business announcement. Further in that period the trading of scrip of Sunrise Asian Ltd was suspended for majority of time. The price increased in systematic manner, as such the price of the impugned scrip started to rise from
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October 2012 and traded in small quantity 10 to 20 share and price increased up to upper limit of 5% most of the time. Once the price reached to highest level in April 2015 at Rs. 603.25 per share, it started decreasing. Initially, the price decreased at the rate of 20% lower, then at the rate of 10% and thereafter at 2% and now trading at Rs. 2 per share.
6.1 The AO in view of the above held the price of the scrip of M/s Sunrise Asian Ltd was manipulated by doing circular transaction in order to provide accommodation entry to the beneficiaries and the assessee is one of the beneficiaries along with his other family members. The AO held that documentary evidences that the shares were credited to Demat account, share sold though broker at stock exchange and consideration received through banking channel are masked up evidences. Thus, the AO treated the entire sale proceeds from sale of shares of M/s Sunrise Asian Ltd for Rs. 16,52,573/- as bogus transaction and added the same to total income of the assessee under section 68 of the Act.
On appeal by the assessee, the learned CIT(A) deleted the addition made by the AO.
Being aggrieved by the order of the learned CIT(A), the Revenue is in appeal before me.
The learned AR before me filed paper book running from pages 1 to 145 and submitted that the co-ordinate Bench of Tribunal in the group case of the assessee involving identical facts and circumstances has decided the issue in favour of the assessee in the case of ITO Vs. Devyani Dharmenra Shah in ITA No. 576/AHD/2020 vide order dated 15-06-2022. The learned AR vehemently supported the order of the ld. CIT-A.
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On the other hand, the learned DR vehemently supported the order of the AO.
I have heard the rival contentions of both the parties and perused the materials available on record. At the outset, I note that the issue on hand is covered in favour of the assessee by the order of this tribunal in case of relative of the assessee namely Devyani D Shah bearing ITA No. 576/Ahd/2020. The relevant of finding of the coordinate bench is extracted as under: 7. We have heard the rival contentions and perused the material on record. The Assessing Officer has not doubted the purchase of shares were through banking channels. While making the additions, the ld. Assessing Officer has not brought any material how the assessee has brought its own unaccounted money for the acquisition of the shares specially when the purchase of shares was not doubted and shares have been sold on Stock Exchange. Further, the ld. Assessing Officer has not brought on record statement of any persons through whom assessee’s own unaccounted money has been brought in. As stated above, the appellant has held the shares for over 3 years and it would be incorrect to treat sale of shares as bogus merely on the basis of suspicion and on account of fact that a substantial quantum of capital gains has been made by the assessee. In the present case, no material has been brought on record to suggest that purchase and sale of shares were bogus. The ld. Assessing Officer has not brought any material to support his finding that there has been collusion or connivance between the broker and the assessee for the introduction of his own unaccounted money. In the present case, despite the assessee’s specific request, no opportunity of cross examination was provided to the assessee on the basis of whose statements reliance has been placed to hold that the sale of shares was sham / bogus. It would be useful at this stage to refer to some judgments which have dealt with the issue before us: (i) In the case of PCIT vs. Smt. Krishna Devi, ITA No.125/2020, the Delhi High Court vide order dated January 27, 2021 held that the fact that there was an astounding jump in the share price within two years, which is not supported by the financials, does not justify the AO's conclusion that the assessee converted unaccounted money into fictitious exempt LTCG to evade taxes. The finding is unsupported by material on record & is purely an assumption based on conjecture. The relevant extract of the judgment is reproduced for ready reference: 12. Mr. Hossain’s submissions relating to the startling spike in the share price and other factors may be enough to show circumstances that might create suspicion; however the Court has to decide an issue on the basis of evidence and proof, and not on suspicion alone. The theory of human behavior and preponderance of probabilities cannot be cited as a basis to turn a blind eye to the evidence produced by the Respondent. ……. 13. The learned ITAT, being the last fact-finding authority, on the basis of the evidence brought on record, has rightly come to the conclusion that the lower tax authorities are not able to sustain the addition without any cogent material on record. We thus find no perversity in the Impugned Order.
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(ii) The Lucknow ITAT in the case of Achal Gupta vs. ITO (ITAT Lucknow) I.T.A. No.501/Lkw/2019 held that the documents demonstrates that the assessee had purchased shares through Brokers for which the payment was made through banking channels. The assessee had sold shares through an authorized stock broker and payment was received through banking channels after deduction of STT. The AO has not doubted any of the documents. The only objection raised is that the scrip from which the assessee had earned Long Term Capital Gain has been held by the Investigation Wing of the Revenue to be a paper entity and that this scrip was being used for creating artificial capital gain. The objection was not found to be acceptable. (iii) The Mumbai ITAT in the case of Dipesh Ramesh Vardhan vs. DCIT (ITAT Mumbai) I.T.A. No.7648/Mum/2019 held that the AO has not discharged the onus of controverting the documentary evidences furnished by the assessee and by bringing on record any cogent material to sustain the addition. The allegation of price rigging / manipulation has been levied without establishing the vital link between the assessee and other entities. The whole basis of making additions is third party statement and no opportunity of cross-examination has been provided to the assessee to confront the said party. As against this, the assessee's position that the transactions were genuine and duly supported by various documentary evidences, could not be disturbed by the revenue. (iv) The Delhi ITAT in the case of Suresh Kumar Agarwal vs. ACIT, ITA No 8703/Del/2019 held that the assessee has produced contract notes, demat statements etc & discharged the onus of proving that he bought & sold the shares. The AO has only relied upon the report of the investigation wing alleging the transaction to be bogus. The ITAT held that the AO ought to have examined a number of issues (which are enumerated in the order) and shown that the transaction is bogus. The capital gains are genuine and exempt from tax. (v) The Mumbai ITAT in the case of Vijayrattan Balkrishan Mittal vs. DCIT, ITA No.3311/Mum/2019 held that the fact that a scam has taken place in some penny stocks does not mean that all transactions in penny stocks can be regarded as bogus. In deciding whether the claim is genuine or not, the authorities have to be guided by the legal evidence and not on general observations based on statements, probabilities, human behavior, modus operandi etc. The AO has to show with evidence the chain of events and live link of the assessee's involvement in the scam including that he paid cash and in return received exempt LTCG gains. 7.1 Notably in the case of Anjana Sandeep Rathi Vs ACIT (ITAT Mumbai) in ITA. No. 4369/MUM/2018, the ITAT Mumbai held that LTCG on sale of shares of M/s Sunrise Asian Limited was not bogus/ sham transaction. While adjudicating in favour of the assessee, observed as under: 6. We have heard the submissions made by rival sides and have perused the orders of authorities below. The assessee in appeal has assailed the findings of CIT (A) in disallowing benefit of section 10(38) of the Act on long term capital gain arising from sale of shares. The assessee during the relevant period had sold shares of M/s. Sunrise Asian Ltd. for a consideration of Rs.14,99,917/-. The authorities below held the sale transaction in aforementioned scripts as bogus and thus, made addition under section 68 of the Act. We find that similar disallowance was made in the case of Narayan R. Rathi (father-in-law of the present assesse/appellant) for the assessment year 2014-15. Narayan R. Rathi had also sold the shares of same company i.e. M/s. Sunrise Asian Ltd. The issue travelled to the Tribunal. The Co-ordinate Bench of the Tribunal in ITA No. 4811/Mum/2018 (supra) deleted the
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addition. The Tribunal while allowing the appeal of Narayan R. Rathi held that the principles of natural justice were violated, the benefit of cross examination was not afforded to the assessee, hence, the addition is unsustainable. The relevant extract of the finding of Tribunal are reproduced herein below:- “11. The authorities below have not doubted the documentary evidence produced by the assessee to prove the genuineness of the transaction of sale and purchase of the shares in question. Further, the authorities below have not pointed out any evidence on record to hold that the assessee has obtained bogus entries in connivance with entry operators and brokers etc., in order to claim bogus LTCG. As pointed out by the Ld. counsel, the assessee was not given an opportunity to cross examine the witnesses whose statements were relied upon and on the basis of their statements it was concluded that the transaction in question was a part of penny stock scam. So, in view of the cases discussed in the foregoing paras, particularly the ratio laid down by the Hon’ble Supreme Court in the case of M/s Andaman Timber Industries (supra), we are of the considered view that the Ld. CIT (A) has wrongly confirmed the assessment order passed by the AO in violation of the principles of natural justice. Hence, the impugned order passed by the Ld CIT (A) suffers from legal infirmity. We, therefore, allow the sole ground of appeal of the assessee and set aside the impugned order passed by the Ld. CIT (A). Accordingly, we direct the AO to allow the claim of the assessee.” 6. The ld. Departmental Representative has failed to controvert the findings of Tribunal in the case of Shri Narayan R. Rathi whose case is on the same pedestal with identical set of facts. In fact a perusal of the assessment order in the case of assesse reveal that the Assessing Officer in para 8.3 has observed that 3000 shares were jointly held by the assesse and Narayan Ramachandra Rathi. The facts of present case are similar to the facts of case in the case of Narayan R. Rathi decided by the Co-ordinate Bench. No distinction in facts has been brought to our knowledge by the Department. Thus, for the parity of reasons, addition made under section 68 of the Act deserves to be deleted. Further, the Assessing Officer is directed to allow the benefit of section 10(38) of the Act to the assessee. 7. In the result, the appeal of the assessee is allowed. 7.2 In light of the above decisions, we are of the considered view that Ld. CIT(A) has not erred in law and in facts in allowing the assessee’s appeal.
11.1 Respectfully following the finding of the coordinate bench of this tribunal in case of relative of the assessee, involving identical facts and circumstances, I do not find any reason to interfere in the finding of learned CIT(A). Hence the ground of appeal of the Revenue is hereby dismissed.
11.2 In the result, appeal of the Revenue is hereby dismissed.
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Coming to ITA No. 02/Ahd/2021 an appeal by the Revenue for A.Y. 2015- 16 in the case of Devarsh Dharmendra Shah
The Revenue has raised following grounds of appeal 1. The Ld.CIT(A) has erred in law and on facts in allowing the claim of disallowance amounting to Rs.29,83,884/- under section 10(38) of the I.T. Act and deleting the addition made u/s.68 of the I.T. Act. 2. The Ld.CIT(A) has grossly erred in facts and in law for the reason that assessee had entered into share transaction in the script Santoshima Tradelink Ltd. which emerged with sunrise Asian Limited, a penny stock company, from whom the assessee earned bogus long term capital gain. 3. On the facts and circumstances the Ld.CIT(A) ought to have upheld the order u/s.143(3) r.w.s 147 of the I.T Act passed by the Assessing Officer. 4. It is therefore prayed that the order of the ld.CIT(A) may be set aside and that of order of the Assessing Officer be restored to the above extent. 5. It is further prayed that the present appeal comprises the issue of organized tax evasion scam involving claim of bogus long term capital gain through penny stocks for which the CBDT vide Circular No.23 of 2019 dated 06.09.2019 read with OM vide Circular No.23 of 2019 res with OM dated 16th September, 2019 exempted such cases from monetary limit for filling appeal, hence the appeal be decided on merits.
The only interconnected issue raised by the Revenue is that the learned CIT(A) erred in allowing the claim of exempted long term capital gain of Rs. 29,83,884.00 on penny stock.
At the outset, I note that the issues raised by the Revenue in its grounds of appeal for the AY 2015-16 are identical to the issues raised by the Revenue in ITA No. 01/Ahd/2021 for the assessment year 2015-16 in the case of Devarsh Dharmendra Shah. Therefore, the findings given in 01/Ahd/2021 shall also be applicable to the ITA No.02/Ahd/2021 for A.Y. 2015-16 in the case of Dharmendra C. Shah. The ground appeal of the Revenue in ITA No.01/Ahd/2021 for the assessment year 2015-16 has been decided by me vide paragraph No. 11 to 11.2 of this order against the Revenue. The learned AR and the DR also agreed that whatever will be the findings in ITA No. 01/Ahd/2021 for A.Y. 2015-16 shall
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also be applied to the ITA No. 02/Ahd/2021 for AY 2015-16. Hence, the grounds of appeal filed by the Revenue are hereby dismissed.
14.1 In the result appeal of the Revenue is hereby dismissed.
In the combined results, both the appeal of the Revenue are hereby dismissed.
Order pronounced in the Court on 09/12/2022 at Ahmedabad.
Sd/- Sd/- (MADHUMITA ROY (WASEEM AHMED) JUDICIAL MEMBER ACCOUNTANT MEMBER (True Copy) Ahmedabad; Dated 09/12/2022 Manish